On March 20, 2018 the FDIC board of directors approved a final rule to raise the appraisal thresholds for commercial real estate transactions from $250,000 to $500,000. The threshold for loans secured by one-to-four family residential properties will remain at $250,000.
The final rule increases the commercial real estate appraisal threshold with three modifications from the proposal.
- First, the agencies have increased the commercial real estate appraisal threshold to $500,000 rather than $400,000 as proposed.
- Second, the final rule also makes a conforming change to the section requiring state certified appraisers to be used for federally related transactions that are commercial real estate transactions above the increased threshold.
- Third, the final rule changes the definition of commercial real estate transaction, which no longer includes construction loans secured by a single 1-to-4 family residential property, regardless of whether the loan is for initial construction only or includes permanent financing. Thus, under the final rule, a loan that is secured by a single 1-to-4 family residential property, including a loan for construction, will remain subject to the $250,000 threshold. A loan that is secured by multiple 1-to-4 family residential properties (for example, a loan to construct multiple properties in a residential neighborhood) would meet the definition of commercial real estate transaction and thus be subject to the higher threshold.
The final rule continues to require regulated institutions entering into commercial real estate transactions at or below the commercial real estate appraisal threshold to obtain evaluations that are consistent with safe and sound banking practices unless the institution chooses to obtain an appraisal for such transactions.
The final rule must be approved by the Federal Reserve and the OCC; once approved by the other agencies, it will be effective on the date it is published in the Federal Register.
A copy of the final rule is available at: https://www.fdic.gov/news/board/2018/2018-03-20-notice-sum-c-fr.pdf.